DuPont Trade-Secret Award Helps Drive 2011 Record Verdict Growth

Lawsuits by DuPont Co. and St. Jude Medical Inc. to protect trade secrets helped account for the largest increase in U.S. history last year in the size of intellectual-property jury awards.

The 10 biggest intellectual-property verdicts, including six patent-infringement and four trade-secret cases, totaled $4.6 billion, almost twice the $2.4 billion awarded in 2010. The verdicts include the two largest ever over trade secrets, according to data compiled by Bloomberg.

The largest, for $2.3 billion, was against an ex-employee of a unit of St. Jude, a maker of medical devices based in St. Paul, Minnesota. The worker was accused of taking company secrets for implantable devices for a Chinese startup company.

The second-highest, for $920 million, was against a South Korean company over secrets connected to DuPont’s Kevlar. The verdicts follow a trend of more cases and more trials, said Elizabeth A. Rowe, a law professor.

“Companies are becoming more aggressive and more willing to pursue these cases,” said Rowe, who teaches intellectual-property law at the University of Florida. “As more and more of these cases go to trial, it encourages people to bring them. You have a growing body of precedents,” she said.

James A. Gale, the attorney who won the $2.3 billion verdict for St. Jude’s Pacesetter subsidiary, said there has been “a significant increase in our own firm in the number of trade secrets cases that are being brought.”

Verdicts as Messages

“Not only are they being filed more frequently, but plaintiffs aren’t stopping at an injunction,” Gale said. “They want a verdict. You need to send a message to your competition and your employees and former employees.”

As intellectual-property verdicts have risen, so have other jury awards. Billion-dollar verdicts have made a comeback in the past three years, with five from 2009 through 2011, compared with one from 2006 to 2008.

Last year was the first since 2004 in which three verdicts were returned of $1 billion or more.

The largest in any category, for $150.4 billion, was also the highest ever in U.S. history. The La Grange, Texas, verdict was awarded to the estate and family of a man over a claim that, when he was 8 years old, he was set on fire to cover up a sexual assault.

The plaintiff died 13 years later, before the trial, of a cancer related to his burns, said the family’s attorney, Craig M. Sico of Corpus Christi, Texas.

Prod to Prosecutors

The verdict, awarded in December, will never be paid, and the case was pursued to persuade prosecutors to bring criminal charges against the defendant, Sico said. That hasn’t happened yet, he said.

The third billion-dollar verdict in 2011 came in June, when a jury in Baltimore ordered Exxon Mobil Corp., based in Irving, Texas, to pay $1.5 billion to residents of a Maryland community over a claim the company contaminated groundwater through a leak from a gas station. Exxon’s motion challenging the $1 billion punitive component of the verdict is pending in state court.

The largest intellectual-property verdicts of the year included the DuPont and St. Jude cases, along with two patent awards among the 10-largest in U.S. history.

One was for $482 million against a Johnson & Johnson unit over stent technology. The other, for $345 million, was against SAP AG over a patent involving business-application software in a suit filed by closely held Versata Software Inc., based in Austin, Texas.

Recession’s Impact

The recession helped spur the rise in trade-secret cases, said Rick Laminack, who won a $94 million verdict against Accenture LLP in May over business software. The amount fell when the trial judge erased $50 million in punitive damages.

“In my 25 years, I’ve always seen business-type torts go up when the economy is suffering,” the lawyer said.

Rowe agreed.

“Trade secrets have a rising importance in this economy,” she said. “Because there is so much more at stake, they almost turn these into bet-the-company lawsuits, as we’ve seen in the patent cases.”

There are other reasons, Laminack said.

“You’ve seen an explosion in new, innovative ideas,” he said. “Just by the sheer volume of the new trade secrets that are out there, you would see an explosion” in litigation.

Taking such property has been made easier by laptop computers, portable drives and the Internet, Laminack said.

“It’s not like you have to break into somebody’s research lab,” he said.

Worker mobility has also been a factor, Rowe said.

Employee Migration

“Employees are leaving jobs more than before,” she said. Whether recession-driven or in seeking opportunities, some of these workers are taking their old employers’ information with them, she said.

“Not all the lawsuits are against former employees,” she said. “We’re seeing a lot of company-against-company cases.”

In the St. Jude case, the company’s Pacesetter unit sued former employee Yongning Zou, alleging he stole company secrets to make implantable medical devices, such as pacemakers and defibrillators. Pacesetter claimed that Zou, a hardware design engineer, brought the information to a startup company in China in which he owned a 48 percent stake. Zou didn’t appear or have a lawyer at the trial in Los Angeles.

The jury awarded $2.3 billion in April and the court later issued an injunction stopping Zou’s company, Nervicon, from using any of St. Jude’s property. It reduced the judgment against Zou to $1.45 billion. Gale declined to comment on the lawsuit and the prospects of collecting a judgment.

St. Jude Statement

“St. Jude Medical takes the protection of proprietary intellectual property and trade secret misappropriation very seriously and will continue to pursue damages against Zou, his company Nervicon, and others who steal our intellectual property.” Amy Jo Meyer, a company spokeswoman, said by e-mail.

The DuPont case was the largest-ever contested verdict in a trade secrets case. The chemical company contended that South Korea’s Kolon Industries Inc. wrongfully obtained DuPont’s proprietary information about Kevlar, a material used in bullet-proof vests and other products, by hiring some of the company’s former engineers and marketers.

DuPont considered Kolon’s actions “theft on a massive scale,” said Brian Riopelle, who represented the Wilmington, Delaware-based company at the trial. “It was a fight that DuPont was going to fight.”

Jeff G. Randall, a Kolon trial lawyer, didn’t return calls for comment.

Kolon Statement

Kolon said in a statement after the verdict that it “had no need for and did not solicit any trade secrets or proprietary information of DuPont.” Many of the alleged secrets “are public knowledge,” the company said, vowing to appeal. Its requests to set aside or reduce the verdict were denied Jan. 27.

For some companies, intellectual-property litigation is aimed at sending a message to competitors, as well as current and former employees, Rowe said. This is particularly important in protecting trade secrets from foreign competitors, she said.

“There is so much outsourcing, we don’t have a good system in place to protect these trade secrets,” she said. “One way to do it is to file these suits.”

Such verdicts may continue to rise, in part because the cases have become more attractive to traditional plaintiffs’ law firms, said Laminack, whose Houston firm, Laminack, Pirtle & Martines LLP, has specialized primarily in product-defects claims and other personal-injury cases for plaintiffs.

“We handled some intellectual property, but this was our first big foray into this area,” he said.

Tort Reform

Tort reform measures in Texas and other states have limited damages or restricted which cases can be pursued, Laminack said. Conservative judges have also limited the chances of keeping a verdict once it’s awarded, he said.

In trade secrets claims “we don’t have to worry about caps,” he said. “In personal injury, you worry about what will happen on appeal because the courts are business-friendly.”

“You’ll see more and more plaintiffs’ lawyers coming into this,” Laminack predicted. “All the plaintiffs lawyers I talk to would love to get into this area.”

The DuPont case is E.I. du Pont de Nemours & Co. v. Kolon Industries Inc., 3:09-cv-00058, U.S. District Court, Eastern District of Virginia (Richmond). The St. Jude’s case is Pacesetter Inc. v. Nervicon Co., BC424443, California Superior Court, Los Angeles County (Los Angeles). The J&J stent case is Saffran v. Johnson & Johnson, 2:07-cv-00451, U.S. District Court, Eastern District of Texas (Marshall). The SAP case is Versata Software Inc. v. SAP America Inc., 2:07-cv-00153, U.S. District Court, Eastern District of Texas (Marshall). The assault case is Middleton v. Collins, 2009V-224, District Court, Fayette County, Texas.

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